World’s Biggest Derivatives Exchange Is Born

With the approval of the Nymex-CME merger, the Chicago Mercantile Exchange has now realized its dream of becoming the most sprawling derivatives market...ever! 

This transaction not only gives it control of the dominant venue for global oil- and metals-futures trading, but also adds emissions trading, freight derivatives and even a laggard Middle East exchange. Oh, and did we mention that this deal puts it in charge of clearing roughly 98% of U.S. exchange-listed futures? Yeah, that too. Plus, by the look of it, this is only the first stage in its plan for eventual world takeover.

CME Group Inc. secured victory in its 12-month pursuit of Nymex Holdings Inc. when members of the New York Mercantile Exchange voted overwhelmingly in favor of the proposed deal.

The takeover gives the CME control over the dominant venue for global oil- and metals-futures trading at a time when some of its core product lines are suffering slowing growth. CME also will gain entry in emissions trading, freight derivatives and the Middle East exchange market.

Nymex won backing from "around 650" of the 816 members, more than the 75% necessary, Nymex Chairman Richard Schaeffer said on a call with reporters.

Shareholders in both companies also approved a combination that will extend its lead as the world's largest futures platform by revenue, adding a suite of energy and metals contracts and other potential sources of growth.

The future of the exchange combination had hung in the balance after dissident Nymex members threatened to block the transaction amid discontent over its terms.

CME ups Nymex bid with buyback, special dividend

CME Group has enhanced its bid for Nymex Holdings by announcing a share buyback and special dividend. The company plans to buy back $1.1 billion in stock over the next 18 months and pay a $5-a-share dividend whether or not its bid for the energy-and-metals exchange succeeds.

Read more at http://www.marketwatch.com/news/story/cme-sweetens-nymex-offer-buyback/story.aspx

Shareholders imperil CME’s proposed Nymex buy

(Reuters) — CME Group Inc.'s planned acquisition of NYMEX Holdings Inc. may be derailed due to heavy opposition from shareholders, the Financial Times reported on Monday.

The terms of the purchase by CME Group, the world's largest derivatives exchange, of the New York-based energy exchange were finalized in March, but the deal has faced increasing opposition from NYMEX shareholders after the value of CME's original bid in January dropped by $2 billion — or some $20 per share — to $9 billion after CME's shares fell.

The Financial Times reported one shareholder group planned to vote down the deal if CME did not raise its bid back up to near its original level.

The deal, that would create a U.S.-listed futures behemoth controlling 98 percent of the market, must be approved by three-quarters of NYMEX's members, meaning only 205 votes against the deal out of 816, would derail it, a threshold one stockholder says is within reach.

Shares of both companies dropped sharply in February after the U.S. Department of Justice issued a letter expressing concern that financial futures exchanges' ownership of clearing operations impedes competition. Investors feared any move to limit clearing operations would lessen profitability.

Another source of contention is the $612,000 price NYMEX offered its seatholders for their trading rights. One long-time seatholder told Reuters on Friday they are worth at least $800,000.

Several shareholders have filed a class-action lawsuit in Delaware against NYMEX and its senior management, including NYMEX Chairman Richard Schaeffer and President James Newsome, alleging they have undersold the energy exchange.

CME Group Inc has hinted that it would not substantially raise its bid for NYMEX and expects NYMEX management to sell the deal to shareholders.

"What would their alternatives be if they were to turn us down?" CME Chief Financial Officer James Parisi asked of NYMEX shareholders in May at an analyst conference.

NYMEX management was set to face NYMEX members on June 3, but that meeting has been rescheduled twice and will now take place on June 19.